Its highly likely that every professional services firm features some iteration of “increase margins” or “increase profits’ in their strategic goals.
What if I told you that the traditional, production based staff level KPIs are precisely what is preventing you from achieving this.
Each year, wages go up. I hear you say – ‘yes Shaye (der), that’s why we increase charge rates’. I’d bet, however, that your charge rate increases are not proportionate to the overall increase in your direct labour. I’d also bet, that not every client would swallow this price hike. To them, there’s the same value in the product as last year, so why would they pay more?
So each year, year on year, wages increase by more than the fees increase on current jobs. It gets harder and harder to complete one job for the same margin as last year. Or the year before. Or the year before that.
Why? Because no one is looking at innovation.
Why? Because all they’re worried about is chargeable hours and write offs.
The model is self-defeatist. And it’s getting worse, now that clients are becoming more savvy. They want to understand – they’re no longer dazed by the mystique of the fancy accounting firm. Yes, they get that compliance work as valuable, but it has a capped value – it’s an ATO lodgement at the end of the day. They don’t care that it took X more hours this year, or that Johnny New CA got a payrise, or that you’ve moved into a fancy new office.
Its happening in legal too. Its not that clients don’t appreciate and respect the expertise, but they don’t want to be blind-sided anymore. They expect a result, and they expect to understand what that result will cost. And again, they don’t care how many 6 minute increments goes into that result.
In the Accounting industry – clearly there’s a bigger issue here in the need for fee diversification. Focusing on exponentially valuable advice and client partnership to protect against the industry-wide erosion of compliance fees is now absolutely business-critical. But how do we make sure the bread and butter still generates decent margins?
Reward Innovation and Encourage Process Review
Change aversion is a natural characteristic of professionals (especially accountants) raised in the traditional model. In the current market, if you’re not growing, you’re declining. If you’re not changing, you’re already obsolete. Encourage staff to think outside the box – challenge the status quo. There’s no such thing as a dumb suggestion – unless of course it’s ‘just look at what we did last year’. Make examples of successful innovative thinking, share these publicly within the firm.
Track Client Satisfaction
Ensuring clients are happy, better than happy, really-absolutely-more-than-satisfied with our service has to be the ultimate goal. Fostering a client-centric mentality will change the way all staff approach jobs. “Is this adding value for the client?” needs to be a daily, even hourly question that professionals ask themselves.
Reward Opportunity Spotting
For accountants, compliance work is a valuable ‘foot in the door’ to offer more extensive, highly valuable, high margin advisory work for clients. Start to reward business development skills in your staff BEFORE they’re a senior manager, so they’re ready when they get there. It could be as easy as a job-end checklist – what can we do more? What other services do we offer that the client is not currently engaged for? Creates a done-for-you BD list!
Don’t Be Scared
I know it’s terrifying to consider including metrics that may be less-than-absolutely-objective in employee performance appraisal. For, goodness sake, lets practice a bit of EQ (we all have some emotional intelligence, don’t we?) – lets assess staff on their wholistic worth, and not reduce them to number-crunching, timesheet-inputting robots. You can always back up your promotion recommendations and performance feedback with a good old fashion margin analysis – The jobs that Sally touches have 15% better margins than those that Steve touches – and they’re paid the same. Clearly, Sally is outperforming Steve. A few basic KPIs to consider, that aren’t chargeable hours and write offs:
- Job turnaround
- Client satisfaction
- Job margin
- Organic fee growth/fee diversification
Encourage staff to be Harvey Spectre – high fees, high margins, not so many hours, happy, motivated, effective and infinitely valuable.
Not Louis Litt – the highest billables in the land, tired, grumpy, with value capped at physical capacity to churn out hours.
Oh, and if you don’t watch Suits – do yourself a favour.